GAME EMULATOR MAKERS BATTLE FOR MARKET SHARE IN U.S.

Datel started marketing emulator software on its own in Jan. under Action Replay brand name in U.S. after severing its relationship with InterAct (CED Dec 11 p5). In U.K., Datel already has been marketing Action Replay cheat products and said it had more than 70% market share at end of 2002. Similarly, InterAct -- Mad Catz’s #1 competitor in overall accessory category -- had been #1 player in videogame cheat/emulator product category in U.S. by wide margin before exiting arena.

Mad Catz executives told investors at recent presentation in N.Y.C. that although they saw marketing of GameShark brand as key to its strategy, they were just as convinced that enhanced features of newly designed emulator product they now were marketing would be preferred by consumers as well. As examples, they said cheat codes offered by their product included greater number of ones for current hit games than competing Action Replay product and display interface/graphics of new GameShark were more “dramatic” and eye-catching.

CEO Morris Perlis said his company was “incredibly excited about the acquisition” of GameShark brand and Web site URL, calling emulator software “a very, very important part of the videogame accessory category” and one that Mad Catz never had offered until now. He said “it really has been our holy grail for a number of years.” Sales Vp Warren Cook said GameShark addition to company’s product line already had enabled company to expand its distribution into retailers such as Electronics Boutique (EB). EB Mdsg. Vp Jerry Madaio told Consumer Electronics Daily Tues. that until Mad Catz started marketing GameShark-branded products, his company’s stores had carried accessory maker’s products on only limited basis.

Mad Catz executives said GameShark addition to its line also would allow it to come up with variety of additional new offshoot products and bundling opportunities, such as SharkByte cheat codes for PlayStation 2 (PS2) version of popular Ubi Soft Entertainment game Tom Clancy’s Splinter Cell that started shipping last week at $9.99 (CED April 7 p8). Company also showed additional conceptual bundles at investor presentation.

Mad Catz also wants to capitalize on large online game community that has been flocking to www.GameShark.com Web site, which it now controls as well. Recoton had said in late 2001 that Web site received one million unique visitors each month and received more than 600,000 page views each day. Mad Catz said last month that Web site now had more than 1.8 million registered users.

Perlis said: “What we're looking at is many other things that we can do with… GameShark.” He said “our relationship with Fire International is something that we believe over the years to come will lead into many other products.” Cook told us that lawsuit filed by competitor Pelican Accessories (CED Feb 13 p9) against Mad Catz and Fire -- U.K. company supplying game enhancement technology to Mad Catz as part of exclusive deal in N. America -- was “ongoing.” Echoing what other executives at Mad Catz and Fire said recently, Cook called suit “baseless.” Mad Catz won early battle when L.A. judge denied Pelican’s request to stop Mad Catz from marketing GameShark products (CED March 5 p10).

One other bonus GameShark provides to Mad Catz is on margin front, Perlis said. He told investors: “I don’t want to set expectations on the margins that are frankly unrealistic. [But] I think that in a general sense what I can say is that the basic gross margins that we know in our basic peripheral business are in the 20s [and] I would say that we're looking at this [GameShark] product being in the 30s.”

Mad Catz COO Darren Richardson also admitted to investors that his company still had “a lot more work to be done” to market GameShark in U.S. But he said Mad Catz had made significant progress considering it had only “about 6 weeks” to get initial product to market after deals were finalized.

Cook told us that most major retailers had agreed to carry Mad Catz’s GameShark products. But while EB already had GameShark product for sale, he said majority of other accounts as of late March had yet to start selling it. One problem, he said, was that certain retailers still had old emulator product on their shelves they were looking to work their way through. Lone major retail holdout, he said, was Toys “R” Us, which as of late last month had yet to agree to carry Mad Shark’s GameShark products. But he said they were “still talking.” Toys “R” Us had made no comment by our deadline. Offering update Mon., Cook told us: “Nine of the top 10 retailers have committed to the placement of the new GameShark. The placement of our product coincides with the various retailers’ resets dates. I would anticipate that all the resets will be complete be the end of May.” But he said “I'm unfortunately not at liberty to provide the quantity of the new GameSharks shipped to date or the sellthrough quantity.”

It was unclear whether EB or any other major retail chains were planning to drop Action Replay entirely and concentrate on GameShark. EB’s Madaio told us his company up until this year had carried only one emulator brand -- GameShark. It currently is carrying Action Replay and GameShark brands, he said. “I think they're both going to do okay,” Madaio told us. But he predicted that GameShark brand would “still be dominant” in U.S. because of consumer familiarity with it as well as enhancements to product made by Mad Catz.

Datel Design & Development Vp Doug Parsons told us that major retailers who “currently carry our Action Replay line, as well as many more Datel products, are EB (online and retail), GameStop (online and retail), Best Buy (online and retail), Target, Wal-Mart, Toys ‘R’ Us, Kmart, Music Land, KB Toys and CompUSA.” He said “we've also signed a distribution deal with the accessory manufacturer Intec, allowing our products to be distributed in smaller retail outlets, as well as in Canada and Latin America.” Although he, too, declined to give sales data for Action Replay emulator products shipped by company so far in U.S., he said: “Our products have been very well received in the marketplace thus far.”

When we asked how Datel planned to compete against popular GameShark brand, Parsons said: “Our overall goal is to continue to provide the best technology and support in the game enhancement market. Let’s face it. We are the guys who made the GameShark product for InterAct, so the software has been a proven success bought by more than 4 million gamers over the years. Action Replay has more hackers with more experience than any other entity in the marketplace. Our code output has been far superior to our competition and our level of support outpaces any other game enhancer. We are also the lone company to have a game enhancement product available on the GameCube platform, a testament to our technological superiority. Believe me, this will be the key to success with our hardcore demographic.” Datel, meanwhile, had initiated various promotional activities to try to boost Action Replay brand name, Parsons said. Company also has CodeJunkies.com Web site that he said “has seen tenfold traffic growth over the last 3 months as kids are driven to the content necessary to fill their code needs. We also have partnerships with some of the largest game sites including GameFaqs.com, CheatCC.com and GameWinners.com -- the 3 largest cheat-based Web sites online. This is the most successful way to get the message out to the core demographic that use cheat devices.”

In-store merchandising also has been stepped up by Datel, Parsons said: “While our competitor talks about it, we are actively doing it. End caps, Sun. ads, promotions at our key retail partners have driven sales penetration greatly since we launched Action Replay in Jan. We will continue these efforts on an ongoing basis.” Datel also has one more advantage in its favor, he said: “We now employ the sales, marketing and content team that made InterAct’s GameShark product so popular over the last 5 years.”

Parsons said that despite flashier interface of GameShark PS2 emulator being marketed by Mad Catz now, his company’s product offered more key features and represented better value: “On disc code support is important to success.” Although Mad Catz said its GameShark 2, v 3.0 for PS2 had more than 16,000 codes, Parsons said: “The Action Replay actually does include many more codes than the Mad Catz product (despite Mad Catz’s claim of 16,000 codes versus our 15,000). We sat down and counted each code and GameShark2 v 3.0 is thousands of codes short of the number they display on their box. Even more important to quantity is quality. When it comes to the top 20 games, we supply hundreds of unique codes on our software and GameShark 3 provides a handful.”

Mad Catz told investors that 3.1 followup emulator for PS2 scheduled to ship this month would offer more codes and consumers always could download new codes from Gameshark.com Web site anyway. But comparing additional codes available at each company’s respective Web sites, Parsons said: “Our biggest advantage is after-sale content support. Please go to Codejunkies.com and then go to GameShark.com. Look for games released over the last 45 days and see the major difference.” Mad Catz hadn’t commented by our deadline.